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The Definitive Guide: How to Start SG Stocks Investing [Part-1]

The Definitive Guide Singapore Stocks Investing

The Definitive Guide: How to Start SG Stocks Investing: Part 1 | Part 2 | Part 3 | Part 4

Introduction

Getting started in stock investing can be an overwhelming task. I admit. There isn’t a lack of information out on the web. Actually there are lots of it, everywhere. All scatter around different sites.

Do you feel the same as well?leaf

Needless to say, there was pain, frustration and anxiety. As if this whole investing thing didn’t want us to start. I didn’t have any friend who has knowledge on investing that could offer me any guidance, so it was tough being a beginner.

Luckily for me, I majored in accounting so I knew what companies, stocks, ratios and financial statements was about. But that didn’t help a single bit when it came to choosing and opening a brokerage account. Or thing like how do I collect dividends, or should I accumulate more capital first before starting to invest, and what about if I’ve only a few thousand of dollars?

There were just so many questions in my mind…

So I spent lots of hours reading through forums like HWZ and VB, some of it were really crazy, like over 30 pages in a single thread! I also followed some financial blogs and sites to learn about investing, but plenty bits and pieces of information were just everywhere.

Learning about stocks and investing suddenly feel like a strenuous task!

What Is The Purpose Of This Guide?

Let me also express that I understand the anxiety and frustration that you face as a starter. I believe learning about investing doesn’t have to be daunting.

So my aim for this guide is to provide you a complete picture of Singapore stocks investing so that you are able to grasp and understand the steps needed to shorten your learning curve.

To also equip you with practical know-hows so to kick-start your investing journey at the shortest possible time.

So I wish you having a joyful and fun learning experience. Feel free also to drop me a note at my Facebook page as well.

If you have any question or area you wish I can dive in further feel free to let know. I value such initiative.

Alright, let’s get started!

open account

Let’s Start With Brokerage Account First!

(Skip this section if you have already registered for a brokerage account.)

I’ll go with the most basic thing first. That’s to get your two accounts ready! Without these two accounts you are not able to buy/sell stocks in SGX.

A Central Depository Pte Ltd account(CDP) – CDP is a subsidiary of Singapore Stocks Exchange(SGX), this is like your savings account but instead of storing the money you deposited. It stores the stocks that you acquired.[Standard Chartered Bank is an exceptional case, I’ll explain it in below]

A Brokerage’s Account – This account allows you to buy/sell stocks in SGX, as you can’t trade directly with SGX without using a brokage firm. All shares’ transactions are required to go through a brokerage firm.

What happens is that you when you bought a share through a brokerage firm. At the end of it the “shares” will be deposited to your CDP’s account. Hence, the brokerage firm does not hold your shares. Neither do you have the physical certificate of the shares(it does not exist anymore.)

Note: you can have more than one brokerage accounts. But you only need ONE CDP account. Because all stocks that purchased through whichever brokerage firm will be deposited to the one and only CDP’s account.

How to Register?

The quickest way to open your trading account is to make a visit down to the brokerage firm. They will help you with the two accounts I mentioned above. Hence, you do not need to go to CDP to have your CDP’s account opened.

Brokerage’s firm will need just your NIRC and your financial status must not be charged under bankruptcy. If you are going for SCB, remember to have $1,000 cash with you as they required you to open a saving account(E$aver) with them with a minimum deposit of a thousand dollar in order to use their shares trading platform.

So it’s simple and easy, right?

Which Brokerage Account Should I Open?

pic4

Currently, there are ten over local brokerage firms in Singapore that you can consider of. But if you want a quick answer then that will be – Standard Chartered Bank(SCB)

Why?

That’s because almost all brokerage firms except SCB will require a minimum commission of $25 per transaction regardless of your trading amount!

It’s ridiculously expensive if you are trading an amount that’s less than hundred or even thousand. So my advice has always been to start with SCB, and it has never gone wrong.

The following is the information for SCB

Zero Min. Commission – There is no minimum commission. Big win!

Low Commission Rate – Their rate is only 0.2% which is the lowest or one of the lowest easily. That means for every $1,000 transaction you trade, you only have to pay about $2.00, plus around ten/twenty cent more for the GST and ex-exchange clearing fee. Don’t have to worry on that as the amount is really small. Another win!

NOTE: from 1/Aug/2015 onward, SCB is charging a min. com. of $10. Click here to find out more.

Obligated E$aver Account – To some this maybe a con. You are required to have a saving account with a minimum deposit of a $1,000. In any event your E$aver account fall below $1,000 they will have a fee of $5 imposes on you(UOB style). For more info click here.

Under SCB’s Custodian – Another flip side on SCB is they hold the shares you bought under their name rather than deposit to your central depository account(CDP). Hence, any corporate announcement or invitation to AGM and etc you will not be informed as technically speaking SCB is the shareholder, not you.

If you are interested in attending the AGM of the stocks you bought, you have to contact SBC and they will make the arrangement for you.

Alert: SCB is an exceptional case, they will NOT open a CDP’s account for you as SCB will act as a custodian of your stock, so they’re like the owner of the storeroom. Hence, only SBC brokerage account does not require you to have a CDP account.

Transfer of shares – Even though the shares are held by SCB you can request for the shares to be transferred to your CDP account. There’s fee to it, actual amount is not indicated on their site.

Conclusion

I see no reason to waste your money on stocks’ commission with other brokerage firms, your trading amount has to be at least $9,000 per trade so to for you not to lose out on the min. comm. of $25. As for the risk of the sudden closure on SCB’s retail trading, you might like to read up the below SCB’s FAQ and HWZ discussion, don’t let the headline scare you!

SCB’s FAQ: https://www.sc.com/sg/help-centre/faqs-ways-to-bank.html
(Search[Ctrl + F] wording “AGM” ,“transferred shares” and “cease offering” if you worry on the closure of equity trading and for other information)

But I Heard SCB’s Chart Sucks!

I admit, they provide the bare minimum just to make trades possible. There’s no interactive charts, stocks fundamental data, screener and etc.

Don’t worry if those are your concerns as I have some workarounds for you.

SGX Stockfacts – Chart sucks? Here you go SGX price chart and its stocks’ overview are easily some one the best out on the web.

Tradingviews(US market) – Need chart for stock indices, futures, bonds or currency? Then Tradingviews has all you need. They even provide useful a pretty comprehesive set of indicators for technical alaysis(not encouraged).

StockFlock – Need comparison on companies’ fundamental data? Here you go, Stockflock provides one of the most visual fundamental chart I’ve ever seen. They have a very good feature that allows you to compare various fundamental matrices.

Trading Economics – It doesn’t have countries’ data? Then look here, Tradingeconomics provide almost every country financial data like GDP, unemployment, interest rate, currency rate, money supply and more and more in a tabular format. Easily it’s the best you can ever asked for.

Open other brokerage accounts – Do you know that you can open more than one brokerage account? And it’s all free. Use their platform for news, charts, data and whatever you like, but when comes to making trades switch to SCB!

stock cert

What Exactly Are Stocks?

To put it simply, people who own stock are known as stockholder.

Stock represents a claim on the company’s assets, liabilities and earnings. As an investor acquires more stock its claim on the company increases.

Note: Stock and share are used interchangeable as both refer to the same thing. Same as stockholder and shareholder. Or if you want to sound more cool in front of your friends then use the word equity holder. All have the same meaning – stock, share and equity.

A stockholder/shareholder/ equity holder is the owner of the company. So if you buy a company stock you are actually the owner of the company. To be exact a very very very… small owner of the company.

Imagine, imagine and imagine…

IF Singtel has a total of 10,000,000 shares outstanding. It means Singtel’s assets, liabilities and earnings are divided into ten million portions(shares). Hence, there are only ten millions of shares exist to be owned.

Each share that an investor owns will represent a claim of 0.00001% Singtel exampleon its business.

So if you bought 10,000 Singtel’s shares. You will have a 0.1% stake in Singtel. That’s to say you have the right to claim 0.1% of Singtel’s earnings, assets and liabilities.

I know it may sound boring. But don’t underestimate 0.1% holding of a huge corporation. Singtel most recent balance sheet has a reported net assets of $25 billion and 0.1% would mean $25 milion !!!

I think I better repeat again. This is an Example. Singtel doesn’t have 10,000,000 shares exsit to be owned. So 10,000 shareholding will not give you 0.1% stake of its business. Phew…

Note: Being a shareholder/owner of the business is not the same as being the management(CEO, CFO and etc..) of the business. Owners own shares therefore they are called shareholders. Management manage the company therefore they are called management.

So when an individual who is a member of the management and also holds majority shares of the company. That individual will be called – owner-manager aka the biggest badass in the corporation.

How Do All These Stocks Things Started?

When you start a business you are required to make a paid-up capital, meaning to deposit money into the business pic6account. It usually has a value of $1 per share.

So if you deposited $100,000, then there’ll be 100,000 number of shares exist in your business.

In fact you can also sell a portion of your business to your friends or your family. Let’s say they are willing to take up 20,000 shares by paying you $1 per share. They will be a 20% part-owner of your business. And you will still be the majority shareholder as you hold 80% of the company’s shareholding.

So no one can touch you. You see even a small business like this. A share can be traded as well. And because the shares are traded privately therefore it’s called a private company.

And, the company also has the capacity to enter into a legal contract under its own name when conducting its business affair. Since, the business itself can enter into a legal contract hence the owner doesn’t have to risk himself legally when running the company. So the owner’s legal liability will be limited . Therefore, it’s called a limited company.

To combine the two you will have Private Limited. In other words – shares that are traded privately without outsiders who you don’t know. And, you as the owner of the company will always use the company to enter into a legal contract when conducting business. Hence, people can only go after your company and not you when there’s a break of law.

ALERT: There’s no such thing as a limited company or a private company. I made that up for your easy understanding. When an individual chooses to register a company as Pte Ltd it will have both above properties in it.

So now you need more money to fund your business. What can you do? You can borrow money from friends and family which they don’t have any now, or from bank.

The bank assess your business and feel that it’s risky, so they are very reluctant to lend you money.

The Stock Market aka Stock Exchange

Lastly, you left with no choice but to sell your shares to people who you don’t know to raise money. So how do you do it? You will need a marketplace for that. Like how we approach Carousell to find buyers for our secondhand items hopefully there will be sellers accepting your offer or negotiate it.

In the case of stocks, It will be a Stock Exchange. It’s like a marketplace for people to buy and sell stocks. However, it’s not like Carousell where you can “Sell in a Snap, Buy with a Chat”. In a stock exchange, you need investment bankers to help you with the process of listing your business.

NOTE: Listing means to put your company shares on a stock market, usually you will issue additional shares so to make it more accessible and liquidable for investors to buy the shares so to raise the capital you desired.

The first day of that launch is called Initial Public Offer(IPO) which you often express to the public that you are giving them a chance to participate in the growth of your business so that they can grow their wealth too!

But the actual fact is that you have no better option since no one can offer capital to your business. Because the shares of your company are trading publicly in the stock exchange. Hence, your company will also be known as listed company, or a public company (publicly-traded).pic5

From there on you will also likely to be quite rich depending on the stocks prices, remember you started up with only $1 per share, but now the share could be trading at $4-5.

Then you live your life happily ever after.

That’s how all the stocks thingy started.

It started from the very beginning when you decide to start a business and register it as a company.

shareholder

The Benefits of Being A Shareholder

#1 You have the right to claim company’s assets

As explained above, a stockholder is entitled to a claim of the company’s assets. So in the event where a company fold its business. As a shareholder, you are entitled to the distribution of the remaining assets(if any).

#2 You have the power to vote For or Against a strategic decision

Since shareholders are the owner of the business, so whenever management want to made a strategic decision they are required to get the permission of shareholders.

The permission comes in the form of two things. A resolution which usually put up by the management. And an approval, which requires the shareholders to pass it.

What makes a decision to be classified as strategic decisions can be gery and complex. And in our case is not very relevant, actually on above as well but it’s good to know.

Why do I say that? That’s because our stake in the business is very small that our voting carry little weight. All you need to know is that occasionally you will receive letters from company/SGX that requires you to attend an AGM and to inform you to vote for the following resolutions:

Election of directorspic7
Rights issue,
Bonus issues,
Dividend payment,
Share consolidation,
Private placement,
of debt or additional shares to fund XYZ project,
Capital reduction
and more and more and more…

The list can go down all the way, but those are unimportant for retail investors in term of voting. I listed them out so to prevent you from a panic when you receive such letters inviting you to their AGM/EGM to vote for the resolution.

#3 You will be invited to AGM

You will be invited to company AGM to hear the management talk about the company strategic direction, why making losses and the drop of share price is normal. Why you should believe in them bla bla bla….

#4 You will be invited for a free lunch/dinner in their AGM’s Buffet

An AGM usually come with a buffet, so you are invited for their free lunch or dinner!

Secrets of getting the best AGM buffets

Here is the secret of AGM buffet.

WahKao3 Arch-Supremacy Member

WahKao3 Arch-Supremacy Member

Tip#1 If you are looking to go AGMs for buffet, buy those dirt cheap stocks. Now with min 100 shares, you can buy a dirt cheap stock at around $25 and attend AGM buffet eat full full. Jin wu hua !

Tip#2 Buy the stocks which nobody knows. Dont buy blue chips like keppel, SATS, Singtel. I confirm the buffet crowd will be very fierce. Buy those lesser known ulu ulu stocks like CDW, innovalue.(now not so lesser known anymore) The buffet crowd is better.

Not so fierce. Often got food leftover because small company, ulu ulu nobodys knows about them, nobody attend the AGM.

Tip#3 for u to share more tips…..

Note: Takeaway may not be allowed.

#5 You are entitled to Dividend and Return on Capital

You are entitled to dividend and any form of return ON capital – company returning its money back to investors because they have too much or simply do not know what to do with it, or could be forced by activist investors. Either which Return ON Capital is a very rare occurrence.

#6 Corporate Actions that You Can Participate In

This list is not meant to be an explanation on the pros and cons but to let you aware some of the corporate actions and those that you are entitled to participate in.

Actionable “SGX will send you a letter for your option, if you ignore it will be by default or it means no”:Rights issue – Company offers you a discount on the additional shares they are going to issue, so to encourage existing investors to invest more of their money with the company.

Scrip dividend – Receiving dividend in the form of additional shares rather than cash. By default dividend will always be paid in cash unless you have agreed to their scrip dividend(They’ll send you a letter).

Dividend Reinvestment Plan (DRIP) – It works exactly the same way as scrip dividend except that instead of issuing new shares to you. The company buys their own shares in the stocks market(SGX) and pays it to you in the form of dividend. Hence there’s no dilution to your shareholding. But company will incur commission cost from their broker whereas the above will not(not your problem).

Note: Any corporate action not just the above or below that results in company issuing additional shares will lead to dilution of your share price if your shareholding do not increase proportionally with the additional shares.

In other words, you reject their right issue, scrip dividend and etc, or not able to take part of the program such as private placement(explained below).

Non-actionable “Nothing you can do about it but it’ll affect your Share Price”:Bonus issue – It also known as stock split, it will announce something like 2-for-1 (2:1). So every one share you own it splits into two shares. The reason? So to make it more accessible to investors. A share that is trading at $5 will become $2.50.

Impact to total shares value: No, as there are no additional issues of shares.

Share consolidation – This is the reverse of bonus issue, instead of splitting their existing shares, the company consolidates their shares. For a 1-for-2(1:2) stock consolidation that will be every 2 shares you hold will become 1 share. A share that’s trading at $5 will become $10

Very common nowadays for share consolidation due to the SGX rule of min. trading price. And this will increase the shares price per share which is the opposite of Bonus issue.

Impact to total shares value: No, as there are no additional issues of shares.

Note: When I indicate a bonus issue will cause the share price to drop from $5 to $2.50 and the consolidation will increase the share that is trading at $5 to $10. Please note that this is a theoretical figure. It does not mean the share price will react in this logical manner or reach that exact price. I’ll explain more on the movement of share price.

Share buyback – When conduct a share buybacks exercise meaning the company buys it own shares. And that’ll lead to increase of your voting power as a shareholder provided you don’t sell it. You might be thinking so is the company now a shareholder by itself as they hold their own shares? The answer is no, shares buyback are shares’ deletion rather than an investment.

Impact to total shares value: Yes, the total value of your shares will increase due to the lesser the number of shares that exist in the stock market.

Private Placement – It refers to a company raising new round of funding that is outside of the Exchange, sort of like under the table offering as you as an investor can not take part in. The word private should resonate with you now as I’ve mentioned above, it means privately traded. So will it dilutes your shareholding?

Impact to total shares value: Yes, the total value of your shares will decrease due to 1. the increase of the total company shares count, and 2. they offer their shares to private investors at a discounted price so to entice them to take up.

Delisting – To list a company is to put the shares up on the stocks exchange. Delist will be the opposite of that aka to privatize it. Usually the company will offer a market price or a price they deem fair to give existing investors a chance to exist the market, as they are not able to sell/buy the shares anymore once it is delisted.

Not necessarily a bad thing if the company offers a premium price. Popular bookstore offered 39% premium on its last closing price so to entices investors to sell off their shares.

De-merger/Merger – De-merger means the company that you are holding shares on splits into two. You’ll be holding 2 companies’ shares. And merger is the opposite of that. Just to let you know there is a huge M&A literature on it, and each case of M&A can be quite unique hence Google it if you need more information.

Liquidation – Is the process of a company selling off its assets due to being a declared bankrupt. Or a simply selling off of its assets such as property, land, patent, a business unit as they received an attractive offer or whatever reason. The word Liquidation can be interpreted as the process of selling an assets.

Note for bankruptcy: Unable to pay what you owe, and having control of your financial matters given, by a court of law, to a person who sells your property to pay your debts. – Cambridge dictionary.

In the case of a stock that will be a company is unable to repay its debts upon legal demand of its creditor(s). Do remember that even if a company is making huge losses year after year so long that it does not have debts and with sufficient cashflows to keep the business going.

The business will NOT go bust! Another misconception is that when the stock you own go bust you will lose all your money. Big false. It depends on two things. First, how much did you pay for the stock. Second how much remaining of assets the company has after paying off all its liabilities. The company can be assets rich but cash poor. Hence, there are chances you can recover some(rare) or even make money(more rare) when the business goes bust.

I know the above may seem overwhelming at first but do not worry if you only understand a few.

Knowing that there are corporate actions that may impact your share price is good enough than not knowing anything as you can always Google when it happens. Hence, you don’t have to remember anything!

In additional to that you can always ask people in HWZ Money section or ValueBuddies which it has a section for delicated thread for almost all the stocks.

Q&A

Why would you suggest SCB, and is commission charge on per transaction basis?

Yes it is based on transaction, buying is a transaction, and selling is a transaction. So If there is min. comm of $25. That means that you will at least incurred $25 when you buy a stock and another $25 when you sell a stock! Which is why it is best to go for SCB as there is no min. comms of $25.

Should I use a broker or DIY through a online platform?

Never go for a broker. They will charge you a commission about 1.5time above the fee you pay for online trading. Don’t think that broker can value add to you, you have to understand that there is a serious conflict of interest. Broker makes their money by having you to trade more, so they will always give you a reason to trade.

I hope you have enjoyed reading this post. I’ve barely covered 40% of my planned part 1, topics seem to breed itself while I was writing. By this rate this would be a long series.

My eventual goal is to create two guides. First one which is this laying out all the required information for you to kick-start your investing journey. But personally I think one of the most important things on investing is having the right basic investing framework. Something that I hope I’m able to provide you through my sharing.

The second guide will be The Definitive Guide To Systematic Value Investing.

This will be a challenge for me as there are still plenty of reading and thinking required, the basic approach is there but still incomplete and requires more refinement. Which is partly the reason why I decided to write this guide.

So to have myself revisit all the fundamental and basic of stocks investing that I learned. To fill the knowledge gaps if any, and strengthen my existing knowledge. Also the possibility of gaining new insights as well

On the next series I will be covering : Making Money Through Capital Gain and Dividend, How Much Money Do I need to Start Investing, The Depth Of Ladder In Bid and Offer…

Lastly do subscribe to my Email list to receive my quality updates if you haven’t.

Happy learning!
GV

PS: Hit the share button as well.

The Definitive Guide: How to Start SG Stocks Investing [Part-2]

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Click Here to Leave a Comment Below 9 comments
Kid - October 9, 2015

Good summary for beginners

Reply
fundamentalrawdata - October 15, 2015

Hi

SCB closed down its equity business in Asia and it is downsizing its staff size recently. So, what happens if SCB stopped this service? how are we able to get back our shares? Do you see this as a major risk?

Reply
GiraffeValue - October 15, 2015

Hi FRD

Personally, I don’t see that much of an issue. Should they close down they will transfer the shares to our CDP account.

This is one Q&A question in their site, you may like to check it out for more info. Anyway, if your investment capital is less than $50K there is an insurance calls fidelity fund that protecting it should the brokerages go into financial trouble.

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